@Arjun S. - Thanks for the feedback you have posted - very excited and happy for you on our first investment together. Having said that I did want to address your concerns and the points you made regarding the new build in FL. There have been many factors here that have lead to some frustrations and I understand and hear what you are saying. Let's address each point that you have made.
First, we can start with land cost. When we undertake a new build we are really dealing with two purchases and two costs if you will. The first being the purchase of land and the second being the construction cost. We do our best to budget, study and analyze the market so we are delivering information as accurately and quickly as possible. However, when markets are appreciating in an unprecedented rate, sometimes that is not always possible. Take the case for land - when we first started working in this market lots were going for $15k and this is what we budget for in our pro formas. Land prices began to soar as demand rose in that area and competition for the same lots of land became fierce, thus driving the prices upwards. Add in the fact that some hedge fund managers came in and started buying large parcels of land and the price rose even further. The current retail price for lots is right about $40k right now, but we are still able to source lots at $30k and sometimes a little lower through our connections in the area. It's something we try to predict as accurately as possible but we are at the mercy of the market. We also have to source land that you can actually build on without a ton of additional hassles and/or expenses. Meaning - we want to source land that is designated to not require additional flood insurance, or have too much shrubbery and/or trees to clear, as well as not have additional factors like too much rock to clear - thus narrowing the pool of lots we can choose from.
Next, we move to lending - talk about a moving target. As you know the banks have been changing rules and interest rates often this year. Again, I share everything I can as I have the information. The biggest change in this market occurred when in April, Fannie and Freddie lowered the percentage of investment loans they would buy from the banks from 17% down to 7% - this sent many investors into a frenzy as their pre approvals for construction loans on investment properties vanished. This left us looking for other options for our investors, including private money lenders. As these changes occurred many investors now found their interest rates had risen (even in the conventional realm) and some lenders that we have worked with for years no longer could support our investors. We have worked diligently for new sources of lending and we were able to secure another source for most investors. In your case, the private lending source that we were able to secure is funding a number of deals for us and our investors. The funds they are securing is also at a greater cost - and fortunately or unfortunately this means the cost of the funding is increased as well. Again, not something we knew about or anticipated, just dealing with the factors at play in the current market and this particular set of circumstances.
Finally - the build cost. This is the second part of the total cost of construction and again, we have seen steady increases in material costs. As you pointed out, yes the cost of lumber has been levelling out - which is one factor - but there are other factors at play as well. For example - supply chain logistics - many contractors I work with are still having a hard time getting materials, even as prices begin to level out, the demand is still sometimes higher than the supply which leads to price increases that are put on the builder, and ultimately the investor that is purchasing in the market. The good news is that these price increases are also reflected in property prices and appraisals that are coming in - so it's not a one-sided game. Specifically - I believe when we started the properties were appraising for $270-280k, whereas as of today we have appraisals coming in (pre construction even) at $310k!
In summary, I know this response is long but I wanted to address each and every point you have made and assure you I always want to communicate clearly the details I have when I have them to make sure you and all the investors I work with have all the information they need to make good investment decisions. We at R2R (and of course myself personally) don't like being surprised by lending restrictions, interest rate changes, price increases, delays, or lack of labor force either - but it's part of the world that we are operating in - especially in high demand markets. I hope this has answered your questions and concerns - you know you can always reach out to me directly with any other concerns or questions and I feel ultimately you will be very pleased with the end result of your investment experience and that these frustrations in the beginning will end in an investment that has resulted in not only a cash flowing opportunity for you as well as an asset that has equity built into it day one.
